Dave Concannon

This great article by Sachin Rekhi got me thinking. Sachin broadly divides entrepreneurial tactics between those that are trying to create "Fundamental" value:

An entrepreneur that focuses on building fundamental value is optimizing for creating a standalone business that generates meaningful cash flow and profit as an independent entity.

and those that are going for "Strategic" value:

An entrepreneur optimizing for strategic value is one that is building their organization in such a way to maximize potential value to a larger organization that will ultimately benefit from an acquisition.

The argument is that in order to create Strategic value, you may need to sacrifice profitability for several years while you grow your user base, capture advantage with industry partnerships or create some hard-to-replicate value.  Those companies looking to acquire the business will need some essential market position or value-add that it would be impractical to try to create themselves.

Mint's Fundamental Value

For a company such as Mint.com we have an example of a business that was creating fundamental value with a product that gave users insights into their finance while earning the company immediate revenue via affiliate sales deals. This was a profitable business that could quite happily have continued under it's own steam before it was bought by Inuit. It's quite probable that the founders thought of Inuit as a potential acquirer, but wisely stuck to their original plan to create fundamental value (and revenue along with it).  Despite some industry whinging, it seems to me that it was a good opportunity for the founders to get a return on their hard work.

Why take VC money?

While 37Signals seem to dismiss the entire concept of raising VC money on principle alone, I'm going to play devil's advocate. The obvious addition of a good chunk of cash to act as a runway can't hurt.  To build up the basis of a strategic value company may take years to create a platform, collect data, or build up a critical mass of users.  A venture capitalist may carry the sort of clout that legitimizes your company in the marketplace.  A well-chosen VC can also have the sort of contacts that is worth far more than the cash they invest, opening doors in your industry that might be completely inaccessible otherwise. Coincidentally as I finish writing this, Dave McClure announced that he's part of a panel on this very topic at SxSW.

Amazon

According to this article from August 2000, Amazon had at least $530 million invested in it. In order to create the strategic value that currently dominates online retailing they burned through huge amounts of capital to build distribution systems, expensive scalable online platforms, huge amounts of content and data entry etc. It seems to be a far riskier play, but if you pick the market, get the formula right, and have a little luck you can fundamentally change how people interact. I can't envisage a way that Amazon could have done it differently.

Why run away from VC money?

While all clichés may not be true, they surely have some grain of truth in them. The stereotype that a VC will boot out the founders if things don't go to plan certainly doesn't happen all the time, but the story doesn't come from nowhere. The main anti-VC argument that 37signals seem to have is that if you have more money then you're inclined to spend it less wisely - this is probably valid from simple economics alone. The discipline to ensure the money is used on the important things (or that your VC will be prepared to keep the cash coming) may be the key for companies aiming to create Strategic value.

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Avinash Dixit and Barry Nalebuff have written a very engaging and accessible work on Game Theory which they purport is a "Guide to success in business and life". Game Theory (not to be confused with Game Mechanics) is the mathematics and psychology of social interactions in strategic situations, and while I'm not sure it's going to make you successful on it's own it's a good place to start at least.

Starting off with examples of games that are easily solvable by starting with the desired goal and working backwards, the authors delve deeper into more complicated issues such as how to strategize when both players can move simultaneously, when there are penalties for certain choices, or how to optimize the situation so that both players get the best possible outcome via cooperation.

This book had me gripped. I happily spent time chilling out reading this book instead of trying to catch some decent waves while on vacation in Hawaii. They authors build on simple cases and then dig into a more complex real-world scenarios involving Nash Equillibrium, Minimax, and decisions where the other players can manipulate information or introduce incentives and penalties. The chapter on strategies for participating in auctions is very interesting.

Included throughout the book are questions designed to test your understanding of the material, and good suggestions for further reading. The writing style is light, despite the material getting into some relatively complicated stuff, and the explanations are more than enough to allow you to understand each concept without having to look elsewhere.  A recommended read, there are some really great ideas in there.

I've been posting excerpts from any interesting links I've come across up at my posterous blog for the last month or so. This is mainly due to the fact that the previous system I was using has decided to no longer work after a wordpress upgrade (Wordpress strips all markup characters) and I'm too busy at the moment to dig through the unholy mess that is wordpress to fix it.

Posterous is a pretty nice system for quickly putting together a simple blog. You can create a post by sending an email, and if you link to a flickr page It'll automatically pull out the image. Likewise with youtube videos and a dozen other services.

Here's a rundown of some of the more interesting links from the last month:

• The 100 Lamest excuses for not innovating

A self-help checklist. If you're making any of these excuses, then you're at risk of being left behind. Don't be left making buggy whips when your competitors are out making cars!

• PR for startups

This is an interesting perspective. While in college I would have had nothing but contempt for PR and Marketing, which I thought of as just adding noise to a perfect process. Somehow, I reasoned, if the product was good enough people would just start flocking to it. Not so unfortunately. This is a great guide to what value PR and marketing provide to a product.

• How a well-designed "Thank you" can keep your community active

A great article from Carsonified about using a cleverly designed "Thank you" process to add a more human touch to your business that makes them want to engage more. Carsonified have a very polished design process which stands out as original and eye-catching yet very human.

• Marc Andreessen at Startup School '08

A few years old, but definitely worth another watch if you've already seen it. Andreessen is busy changing the world with his VC fund at the moment, but as one of the few people to have created not one, but two billion-dollar companies from scratch he's someone who you want to listen to.

• If your product is great, it doesn't need to be good

Fantastic article by Paul Buchheit on product focus. The message is simple - Pick two or three key things that will create a competitive advantage and do them really really well. Trying to implement every idea under the sun leads to mediocrity initially, and failure in the long run.

Blender.com listed the music industry's attempts to quash Napster as the greatest blunder in the recording industry's history. The music industry found itself in a shifting business landscape that it did not understand and felt it couldn't control. The knee-jerk reaction was to try to do everything in its power to stop online music distribution, including directly suing it's customers. Freely available online music was a disruptive innovation and the existing model was no longer viable within a few years.

Online Video Following the Music Industry's Mistakes?

Innovations in streaming technologies and increased consumer bandwidth have made high-definition streaming video freely available in a mainstream capacity. Many of the main television networks stream their most popular shows online, yet there's still a lot missing. Netflix streams movies and TV shows, but doesn't have recently-aired shows available. Hulu offers shows within days of their network TV appearance, but doesn't allow it's site to be viewed on the Playstation 3 and makes repeated attempts to block streaming on PVR platforms such as Boxee. Will we see the same sort of issues playing out in the online video market?

It is understandable that viewing the latest TV shows will require some sort of fee. I'm happy to watch the advertisements on Hulu or fox.com if I can watch the latest shows - In fact, it's preferable to watching on the TV as there's a countdown to tell you how much time is left in the advertisement. The quality is occasionally crappy, but I also don't want the hassle of dealing with torrents to download shows or movies. So what's the answer?

Netflix

Netflix dominates DVD rental, obliterating the bricks-and-mortar rental stores which are increasingly turning into tanning salons. They also make their streaming movies available on XBox, PS3, and Nintendo Wii. One thing they're missing is the real-time angle. They have streaming trailers for existing movies on the website, but not on the gaming platforms and not for forthcoming movies. They don't have the latest TV shows as soon as they air, even though they're available on the TV network's own site. Why is this? My guess is iTunes. In-show advertising revenue just can't compete with thousands of users paying directly for the content, so it's not in the network's interest to offer it via Netflix. I would also think that profit margins on new TV shows are far healthier than those on music content.

To remedy this, the networks could demand an extra fee from Netflix. I'd pay more for their service if I could get access to certain shows, but I'm certainly not willing to pay a three dollar per-episode price or anything close to it. I'd love to see figures on the overlap of people who regularly buy TV shows from iTunes who also have a monthly Netflix subscription. What percentage of purchasers pay more for individual shows than they do in Netflix subscription fees?

I can't imagine Apple wanting to change the situation either, in fact judging by their recent behavior I'd be surprised if they didn't get more aggressive in the video market.  Recently there are allegations that they're pressuring music labels to ditch Amazon. They're lawsuit happy this year, also suing HTC for alleged patent infringement on the iPhone.

Following on from my previous post about Salesforce Chatter pushing Social Media across the chasm, here's a very insightful opinion piece on why ExactTarget's acquisition of CoTweet will legitimize social media as a mainstream marketing technology. More and more enterprise software companies are accepting social software as a business tool - it's no longer just an experimental playground for web developers.

Link: Objective Marketer on Integrated Social Media

Part One - A recipe for a successful company

1. Hire really smart people and let them create. Give them some basic guidelines and the time and space to do what they do best. Leverage their creativity and deep understanding and let them surprise you with something amazing. (e.g. Seth Godin's "Purple Cow")
2. Hire mediocre drones and be prepared to tell them how to do every task that needs to be done. Create easy-to-follow processes and training manuals. Track everything they do to make sure it gets done. Plan meticulously for every deviation from the normal. (e.g. Michael Gerber's "E-Myth revisited").

You might hire separate groups of A and B people each doing different things, or you might hire a few A people and let them lead a team of B drones to create something awesome.

Part Two - How to run a company into the ground

A recipe on how to frustrate everyone who works with you, burn cash like it's going out of fashion, and generally run a company into the ground: Treat the A people like B people, and treat the B people like A people. Don't cross the streams.

Following up on my previous post on game mechanics, I've seen some interesting commentary and implementations.

Dave McClure thinks "checkins" (The main 'game' component of foursquare and gowalla) will become a commodity within a year. It would seem to make sense - It's an original idea, but in terms of defensibility there's no real barrier to prevent people adding this sort of function to any software.  How useful are 'checkins' to more serious software? It remains to be seen.  Steve Blank's latest post on this sort of competitive analysis driving feature sprawl has an interesting summary of why this may not be such a great strategy. It's not just the nuts and bolts of what you do, it's the ecosystem you build around it.

Gaming Unit Testing

Where game mechanics can be really interesting is in turning dull tasks into something more interesting. Here's an example of using "achievements" in a unit testing framework - rewarding the user for getting their tests to pass (or fail in particularly frustrating ways).

Game Dynamics Presentation at DICE 2010

Finally, here's a very interesting presentation on Game Dynamics from DICE 2010 (via marketing.fm).

Marc Benioff, CEO Salesforce (Image via Techcrunch)

Techcrunch has a very interesting guest post from Marc Benioff, CEO of Salesforce on the inspiration behind their new collaboration suite "Salesforce Chatter". Benioff resigned from Oracle to start Salesforce as a result of his dissatisfaction with enterprise software; a sector which has traditionally been slow to adopt new technology. This is understandable when you think of the effort that was required to install software on tens of thousands of machines in an office network, but something that has gradually changed now that hosted services are reliable and secure.

The basis of Salesforce Chatter seems to be in bringing some of the ideas behind facebook, twitter, and similar social services to enterprise software. I wrote about a similar concept (bring game mechanics to 'serious' software) a while ago. I think the opportunity here is huge.

Enterprise software development is generally driven by directly solving issues within the direct problem domain and rarely do these sorts of social ideas get traction beyond mimicking an email system within software. At some point in time every enterprise system I've worked on has had an email system shoe-horned into it, and it has failed in every case. People already have email, it's not of any benefit to have a separate system to do the same thing.

However, this sort of "soft" collaboration is unobtrusive and very useful. It builds on network effects to grab information from outside the user's direct circle. Salesforce may be one of the first to offer these sorts of services, but they definitely won't be the last - Social media may just have crossed the chasm.

The astute reader will notice an extra widget on the right hand side of the blog here. It's in support of the Startup Visa idea which will grant visas to entrepreneurs with existing funding looking to start their companies in the states.

This initiative will create new jobs and significantly increase the talent pool of highly-skilled entrepreneurs in the states.

The Startup Visa Act proposes legislation to modify the existing EB-5 Visa drive job creation in the US and increase American global competiveness by helping immigrant entrepreneurs secure visas to the United States and create new companies, where there is investment capital available from a sponsoring US venture capital or angel investor of at least $100,000 in an equity financing of not less than $250,000.

More information on the startup visa here: http://startupvisa.com/2010/02/24/kerry-lugar-startup-visa-act/

How can you help?  Add the widget to your blog from this link: http://startupvisa.2gov.org/widget/.

Access to technology has become easier than ever. Technology concepts that once had a high barrier to entry to the uninitiated have converged into frameworks, APIs, and libraries which give even relatively unskilled programmers the ability to create web software easily. Cloud infrastructures can alleviate a large part of the cost and complexity of scaling and availability under high traffic demands.

The abstraction doesn't even stop at the basic technology; at one level above this, some of the fundamental use cases in web software can be delegated to high availability services e.g. Twitter or Facebook Connect for primary user login and profile management or Yahoo Pipes to translate and combine different data sources into a format you require without having to write a line of code. Reusing the essential use cases of software was an original vision in a startup I worked for nearly ten years go, and at the time it seemed a distant and indistinct goal. Today, loosely-coupled Service-Oriented Architectures allows business the freedom to focus on the core business problems.

Dot Com Lessons

The dot com bubble exploded around the concept of the "first mover advantage" whereby companies had to be the first brand in the consumer's mind regardless of the cost to get there or the value of the underlying business proposition. Huge amounts of capital were burned trying to build the sort of basic infrastructure that is now available for free or at a fraction of the cost. The web 2.0 era has been both caused and inspired by a massive innovation in technology used on the web; at first revolutionary but now almost fundamental to how some users experience the web. The battles between innovative frameworks and libraries that do similar things eventually leads to a de facto standard. In some languages and problem domains, more and more developer time is spent simply connecting different technologies together (slide #93).

I'm not claiming that technology has hit a dead end - that is clearly not the case. Engineering innovation will always be a core requirement for certain types of business, the point is that the barriers to technology implementation that a business faced even five years ago made it a very difficult and costly problem. This is no longer the case.

This Decade's Focus

So where is value added? I believe that this decade will fundamentally be based around a businesses attitude to design. When all product or software businesses can assemble the same basic set of underlying features that solve a customer's problem for little to no cost, remarkable design and marketing is the differentiation. You cannot outsource creativity.

Design

Graphic work can be turned into a commodity on crowd-sourced forums such as 99designs, but as Eoghan McCabe points out design is something very different. Apple excel at distilling consumer trends into a product vision that they conjure remarkable designs around and whip up a frenzy of demand for. Mint took the basic problem of not knowing the best prices on essential banking and utility services and wrapped it into a clean interface that requires next to no user interaction to save money. In both these cases the value add is from a beautiful design that wraps pretty basic features in a creative way.

Flexible Business Models

Innovation will also come from business model design - using concepts from Lean Startups and Business Design Innovation to rapidly react to market forces and pivot. As technology can be built with less inertia, and more about your user's interaction with your product can be measured and analyzed than ever before, changing direction is arguably less painful now then it has been at any point in history.

So, what do you think? Has technology been commoditized to the point at which it's almost no longer a concern for a lot of businesses? Is design (of product and business model) the new king?  What is the must-have skillset for a programmer in an era where technology is no longer the be-all and end-all?